Court hears arguments in Harleysville home builder case

For almost two hours yesterday, lawyers in U.S. Bankruptcy Court in Philadelphia wrestled with what was supposed to have been a matter easily handled:

Whether Harleysville-based home builder T.H. Properties L.P. (THP), which filed for Chapter 11 protection April 30, could sell homes at one of its 12 developments, Westport Farm in Hatfield, and use the proceeds to start repaying loans to Continental Bank for that community and another called Ivywood.

Such a move is called cross-collateralization, or a dragnet clause. It is a well-established principle and, as Chief Bankruptcy Judge Stephen Raslavich pointed out, "a position clearly stated" in the motion crafted by THP's attorneys and debated at the hearing.

Stephen Adams, who represents ProBuild Holdings Inc., a materials supplier that is among THP's creditors, argued unsuccessfully that allowing the motion would create a precedent that could affect subsequent disposition of THP's assets.

Raslavich was not convinced, suggesting that no precedent would be set. The judge sought to reassure Adams that his client would still be "in a position to try to obtain $500,000 in potential mechanic's liens ProBuild is owed," even if he approved THP's motion.

The builder owes Continental Bank in excess of $5 million, court records show.

Blue Bell lawyer David Marshall also had filed an objection to the motion, seeking either the return of a $21,345 deposit on a Westport Farm home paid by his clients Michael and Evelyn Foisy or an agreement that THP would proceed with the sale.

THP attorney Natalie D. Ramsey said the situation was discussed with Marshall, but that no accord was reached.

Ramsey said the company did not have the money, which was not escrowed as required by state law. The Foisys' house has another buyer "and trying to back out of that sale would create more difficult issues."

THP is willing to work with the Foisys to credit the deposit to another house, she said.

Raslavich met with Ramsey and Marshall during a lunch break, but Marshall did not respond to a request to discuss what happened.

The value of some of THP's Montgomery County property assets - specifically two at its Belmont Estates community in Franconia and one at Hawthorne Estates in New Hanover - was addressed at the hearing but never fully established. THP had asked the court to approve their sale to pay some of what it owes to Susquehanna Bank, which provided financing for both developments.

THP attorney Richard J. Placey sought to show that all three properties - two in need of substantial finishing work and one simply lacking a basement - were not going to bring in a lot of money.

"The houses aren't finished, they don't have certificates of occupancy, and cannot obtain conventional mortgages, especially in this market, so would likely have to go to sheriff's sale," Placey said.

While Raslavich left the courtroom for a conference call, the parties involved, including Susquehanna Bank, reached a compromise, agreeing to set aside $247,000 from the sale of one of the Belmont properties and escrow funds for mechanic's liens from it.